S&P 500; US Indexes Fundamental Daily Forecast – Rising Oil Prices Providing Support, but Strong CPI Could Cap Gains

The major U.S. stock indexes soared on Wednesday, led by a surge in oil stocks. The upside momentum in the energy sector was generated by a sharp rise in crude oil prices in reaction to President Donald Trump’s decision to withdraw the U.S. from the Iran nuclear deal.

In the cash market, the benchmark S&P 500 Index settled at 2697.79, up 25.87 or +0.97%. The blue chip Dow Jones Industrial Average finished at 24542.54, up 182.33 or +0.75% and the tech-driven NASDAQ Composite closed at 7338.10, up 71.20 or +0.98%.

The S&P 500 Index was supported by a 5.4 percent rise in Occidental Petroleum. The technology sector rose 1.4 percent. Industrial, financials and materials sectors also surged.

Chevron and Exxon Mobil were among the best performers in the Dow Jones Industrial Average. Shares of both companies rose more than 1.5 percent, while the Energy Select Sector SPDR Fund (XLE) gained 2 percent.

Although the markets posted strong energy-related gains, the upside may have been limited by interest-sensitive sectors of the market. Utilities, for example, a sector adversely related by higher rates, was one of the worst-performing areas on Wednesday, falling 0.7 percent.

U.S. interest rates continued to rise on Wednesday with the 10-year Treasury note breaking above the 3 percent mark for the second time in less than a month. This move may have kept investors on edge while limiting gains in the energy-driven indexes. The two-year note yield also traded at its highest level in nearly a decade.

In corporate news, Walmart dropped 3.1 percent. The move was fueled by the retailer’s decision to buy 77 percent of Flipkart for $16 billion. Flipkart is an e-commerce company based in India.

In economic news, the U.S. Labor Department said producer prices edged up just 0.1 percent in April – the smallest increase since December – capped by a slump in food costs. The department said that the read on the producer price index, which measures inflation pressures before they reach consumers, followed a 0.3 percent rise in March.

Core prices, which exclude volatile energy and food, matched expectations of a 0.2 percent increase in April. Over the past 12 months, wholesale prices are up 2.6 percent while core wholesale prices have risen 2.3 percent, according to Reuters.

Forecast

On Thursday, investors will be paying close attention to the U.S. Core Consumer Price Index which is expected to come in at 0.2 percent for April. A bigger-than-expected change could pressure stocks or limit gains if it sends U.S. Treasury yields sharply higher.